Discontent at NZ Farming Systems Uruguay
Discontent at NZ Farming Systems Uruguay A shareholders revolt is brewing at NZ Farming Systems Uruguay (NZFSU), mainly because of the company’s management fee structure. A number of shareholders believe that they should have invested in PGG Wrightson, instead of NZFSU, because of the huge fees payable to the former. NZFSU issued a prospectus in November 2006 to raise money to purchase dairy farms in Uruguay. The main promoter of the issue was PGG Wrightson, which negotiated the following fee payments from the new company: PGG Wrightson had a strong incentive to accelerate its farm purchases - mainly because its annual fee structure declines from June 2008 onwards – and this is exactly what happened. Total assets, which are the basis of the management fee, were US$184.4 million at the end of June compared with a prospectus forecast of only US$63.2 million. Thus NZFSU paid PGG Wrightson a management fee of US$807,000 instead of US$329,000 forecast in the prospectus. However, as the table below shows, revenue and earnings fell well short of forecasts. New Zealand Farming Systems Uruguay – Actual versus forecasts (US dollars) NZFSU is having one for two rights issue plus an institutional placement and is planning to list on the NZX. The issue price is $1.50 a share compared with $1.00, 12 months ago. It is difficult to understand how NZFSU can justify a 50% increase in the share price when it has substantially underperformed its prospectus forecast both in terms of revenue and earnings. PGG Wrightson will be a major beneficiary of this higher share price, assuming it doesn’t fall post NZX listing, as it receives a performance fee based on the price. Assuming the price stays above $1.50 PGG Wrightson should receive a performance fee in excess of $10 million. PGG Wrightson looks as if it will receive far more cash payments from Uruguay in the short to medium term than NZFSU shareholders.
Actual 30 June 2007
Prospectus forecast
Variation
Total assets
$184.4m
$63.2m
+191.8%
Revenue
$669,000
$3,024,000
(77.9%)
Net profit after tax
($289,000)
$600,000
Loss, not profit
Management fees
$807,000
$329,000
+145.3%
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